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Restaurant Group – trading update, facing a perfect storm?

By Steve Moore | Wednesday 25 January 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Frankie & Benny's, Chiquito, Coast to Coast and Brunning & Price operator, Restaurant Group (RTN) has announced a “Post Close Trading Update” including that “results are expected to be in line with previous guidance”. However, the shares are currently more than 10% lower, heading towards 300p (though a still more than £600 million market cap), in response.

For the 53 weeks ended 1st January, turnover of £710.7 million is reported – with like-for-like sales -3.9%, after -5.9% in Q4. The year saw 37 sites closed and 24 opened, with September-commenced CEO Andy McCue noting there “necessary changes to offer better value and satisfaction to our customers”.

This follows the start of price and menu trials across Frankie & Benny's confirming that “substantial price and proposition changes are required” and a review of the other Leisure brands having “revealed a need for similarly significant change”. The company resultantly expects “difficult” trading performance in the first half of 2017, “but anticipate momentum improving towards the end of this transitional year as our initiatives start to take effect”. Hmmm, we’ll see on the latter with it also noted;

“During 2017, the group will also face well documented external cost pressures from the increases in the National Living Wage, the National Minimum Wage, the Apprenticeship Levy, the revaluation of business rates, higher energy taxes and increased purchasing costs due to the combined effects of a devalued pound, and commodity inflation.”

There thus looks something of a perfect storm of issues here, with the company to “provide an update on the proposition development in Frankie & Benny's, the strategic reviews of our other Leisure brands and the cost efficiency opportunities identified across the group… at our Preliminary results on 9th March”. There has previously been takeover rumours which may deter a short, but I’d certainly avoid.

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